10-Q: Cardiff Lexington Corporation Reports First Quarter 2024 Results

Sentiment:

Quarterly Report 10 May 2024 11:05 AM

Cardiff Lexington Corporation's Q1 2024 results show a slight decrease in revenue and a net loss, impacted by increased operating expenses and other financial adjustments.

Capital raiseThe company intends to raise capital for additional acquisitions primarily through equity and debt financings.The company believes that additional funds from new financing and/or future equity raises are required for continued operations and to execute its business plan.The company estimates that the amount of outside additional capital necessary to execute its business plan ranges between $4 million to $10 million.

Worse than expectedThe company's net loss of $283,104 is significantly worse than the net loss of $15,991 in the same period of 2023.The company's operating expenses increased substantially, impacting profitability.The company's revenue slightly decreased, indicating a potential slowdown in business activity.

Summary

Cardiff Lexington Corporation reported a net loss of $283,104 for the first quarter of 2024, compared to a net loss of $15,991 in the same period of 2023.
Revenue for the quarter was $2,661,966, a slight decrease from $2,706,399 in Q1 2023.
The company's gross profit was $1,713,812, down from $1,750,104 in the prior year's quarter.
Operating expenses increased to $1,494,820, up from $992,556 in Q1 2023, primarily due to higher selling, general, and administrative costs and share-based compensation.
The company's total assets were $22,605,310 as of March 31, 2024, compared to $20,745,811 at the end of 2023.
The company had $1,253,552 in cash as of March 31, 2024, up from $866,943 at the end of 2023.
The company's accumulated deficit was $69,118,853 as of March 31, 2024.
The company sold Platinum Tax on November 10, 2023, and the results are reported as discontinued operations.

Sentiment

Score: 3

Explanation: The document presents a concerning financial picture with increased losses, rising operating expenses, and a significant accumulated deficit. While there are some positives, such as improved cash position, the overall tone is negative from an investment perspective.

Positives

The company's cash position improved to $1,253,552 as of March 31, 2024, up from $866,943 at the end of 2023.
The company secured a revolving line of credit, providing access to up to $4.5 million in financing.
The company's total assets increased to $22,605,310 as of March 31, 2024, compared to $20,745,811 at the end of 2023.

Negatives

The company experienced a net loss of $283,104 for the first quarter of 2024, a significant increase from the net loss of $15,991 in the same period of 2023.
Operating expenses increased substantially to $1,494,820, impacting profitability.
The company's revenue slightly decreased by 1.64% to $2,661,966 in Q1 2024.
The company has a significant accumulated deficit of $69,118,853 as of March 31, 2024.
The company's disclosure controls and procedures were deemed ineffective due to material weaknesses.

Risks

The company has a history of recurring operating losses and a substantial accumulated deficit, raising concerns about its ability to continue as a going concern.
The company's disclosure controls and procedures are not effective due to material weaknesses, which could impact the reliability of financial reporting.
The company's ability to raise additional capital is uncertain, and failure to do so could lead to curtailment of operations.
The company has significant debt obligations, including convertible notes and a line of credit, which could impact its financial stability.
The company's healthcare segment is subject to changes in insurance billing rates and contractual adjustments, which could affect revenue.

Future Outlook

The company believes that current working capital and additional financing should be sufficient to fund operations for at least one year, but additional funds are required for continued operations and acquisitions. The company intends to raise capital through equity and debt financings.

Management Comments

Management is in continuous discussions with prospective investors and believes the raising of capital will allow the Company to fund its cash flow shortfalls and pursue new acquisitions.
Management has invested years working to develop a new and exciting housing development in Salmon, Idaho and plans to enter into a joint venture agreement with a developer for this planned concept development.

Industry Context

The company operates primarily in the healthcare industry, which is subject to regulatory changes, insurance billing adjustments, and competitive pressures. The company's focus on acquiring undervalued healthcare companies aligns with a broader trend of consolidation in the healthcare sector. The company also has a real estate segment, which is subject to market conditions and development risks.

Comparison to Industry Standards

The company's revenue decrease of 1.64% is not ideal, as many healthcare companies are experiencing growth in the current market.
The increase in operating expenses, particularly selling, general, and administrative expenses, is concerning and may indicate inefficiencies compared to industry benchmarks.
The company's net loss of $283,104 is significantly worse than many of its peers, who are reporting profits or smaller losses.
The company's cash position of $1,253,552 is relatively low compared to other companies in the healthcare sector, which often have larger cash reserves.
The company's reliance on convertible debt and a line of credit for financing is a higher risk strategy than companies with more traditional financing structures.
The company's accumulated deficit of $69,118,853 is a significant concern and is much higher than many of its peers.

Management Changes

Role	Previous Person	New Person	Effective Date	Reason
Chief Financial Officer	Previous CFO	Matthew Shafer	2024-01-02	New employment agreement
Chief Accounting Officer	Previous CAO	Zia Choe	2024-01-02	New employment agreement

Corporate Governance

Change Type	Description	Effective Date	Impact Assessment
Authorized Shares	The company amended its Articles of Incorporation to authorize 350,000,000 shares of capital stock, consisting of 300,000,000 shares of common stock and 50,000,000 shares of preferred stock.	2024-05-08	This change increases the company's flexibility to issue additional shares for financing or acquisitions.

Legal Proceedings

The company is not currently aware of any legal proceedings or claims that it believes will have a material adverse effect on its business, financial condition, or operating results.

Related Party Transactions

The company has amounts due to previous owners of Edge View, who are current managers, totaling $4,979.
The company obtained short-term advances from the Chairman of the Board, owing $45,844 as of March 31, 2024.

Stakeholder Impact

Shareholders may be concerned about the company's increased net loss and accumulated deficit.
Employees may be affected by potential cost reductions or changes in operating plans if the company is unable to raise sufficient funds.
Customers may experience changes in service if the company's financial instability impacts its operations.
Creditors may be concerned about the company's ability to repay its debts given its financial performance.

Next Steps

The company plans to evaluate its updated internal controls design and determine whether the controls have operated effectively during 2024.
The company intends to complete the remediation of the material weaknesses in its internal control over financial reporting as soon as practicable.
The company plans to enter into a joint venture agreement with a developer for its planned housing development in Salmon, Idaho.

Key Dates

Date	Description
2009-03-12	The company issued a debenture in the principal amount of $20,000.
2014-07-16	The company acquired Edge View Properties, Inc.
2016-09-12	The company issued a convertible promissory note in the principal of $80,000 (Note 9).
2017-01-24	The company issued a convertible promissory note in the principal amount of $80,000 (Note 10).
2018-07-31	The company acquired Platinum Tax Defenders.
2019-05-10	The company issued a convertible promissory note in the principal amount of $150,000 (Note 29).
2019-11-08	Note 29 was purchased by and assigned to an unrelated party and split into Note 29-1 and Note 29-2.
2020-06-02	The company obtained an SBA loan in the principal amount of $150,000.
2020-09-03	The company issued a convertible promissory note in the principal amount of $200,000 (Note 37).
2021-05-31	The company acquired Nova Ortho and Spine, LLC.
2022-09-22	The company issued a convertible promissory note in the principal amount of $2,600,000 (Note 40-1).
2023-02-10	The company executed a second tranche under Note 10 in the principal amount of $50,000 (Note 10-1).
2023-03-21	The company executed a sixth tranche under Note 40 in the principal amount of $136,666 (Note 40-6).
2023-03-30	The company executed a third tranche under Note 10 in the principal amount of $25,000 (Note 10-2).
2023-06-05	The company executed a seventh tranche under Note 40 in the principal amount of $136,667 (Note 40-7).
2023-06-13	The company executed an eighth tranche under Note 40 in the principal amount of $21,167 (Note 40-8).
2023-07-19	The company executed a ninth tranche under Note 40 in the principal amount of $35,500 (Note 40-9).
2023-07-24	The company executed a tenth tranche under Note 40 in the principal amount of $14,000 (Note 40-10).
2023-08-11	The company executed a fourth tranche under Note 10 in the principal amount of $25,000 (Note 10-3).
2023-08-25	The company issued a twelve-month convertible promissory note in the principal amount of $5,000 to the Companys CEO (Note 41).
2023-09-29	The company entered into a two-year revolving purchase and security agreement with DML HC Series, LLC.
2023-11-10	The company sold Platinum Tax.
2024-01-09	The company effected a 1-for-75,000 reverse split of its outstanding common stock.
2024-01-19	The company issued 62,500 shares of series I preferred stock to each of Daniel R. Thompson and Alex Cunningham.
2024-01-31	The company issued 5,000 shares of series I preferred stock to Matthrew Shafer and 2,500 shares of series I preferred stock to Zia Choe.
2024-03-05	The company issued 7,500 shares of common stock to an investor relation service provider.
2024-03-26	The company issued an aggregate of 30,000 shares of common stock to three board members.
2024-05-08	The company filed the amendment of Articles of Incorporation.

Keywords

healthcare, acquisitions, financial results, operating expenses, convertible notes, preferred stock, revenue, net loss, debt, real estate

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